The FTSE 100 index has recovered quite a bit from the stock market crash earlier in 2020. For investors who bought shares during the dark days of March, returns on investments are already visible. The FTSE 100 index itself has gained 21% from its lowest point. But if you missed that bus, all’s not lost. I think some great FTSE 100 shares are still available at affordable prices. Here, I explore the potential of three cheap UK shares that will reward investors over time.
Cheap UK share with good growth prospects
First, consider Hikma Pharmaceuticals (LSE: HIK), which released its upbeat results last week. Its reported revenue is up 8% and operating profit is up by 26%. It now expects to show healthy performance in the foreseeable future as well. It’s little wonder, then, that its share price rose by 11% on the day the results were released. I think there are at least three reasons for it to rally further.
One, if you think AstraZeneca, the most sought after FTSE 100 stock, is out of reach now, this is a cheap UK stock to consider. Its price-to-earnings (P/E) ratio is at a low 11 times, compared to AZN’s at 51.6 times. Two, like AZN, HIK is also part of the efforts to develop Covid-19 medication. What’s better than buying a promising share that’s solving the world’s most immediate problem? And three, it’s a dividend-paying stock. It’s dividend yield is muted at 2.25%, but I still think it’s worth mentioning for two reasons. Many FTSE 100 companies still aren’t paying dividends so the ones that still are, tend to stand out. Two, dividend dependability needs to be considered when investing for a passive income today. With its positive outlook, I think HIK will continue to keep paying dividends in the future as well.
Insurance against slowdown
The FTSE 100 investment biggie Legal & General is another cheap UK stock that gained last week on releasing results. It too is profitable, even though its performance has weakened from last year. Nevertheless, per the CEO, Nigel Wilson, its “ambition is for a similar performance in H2”. This is a less optimistic statement than HIK’s but it’s still fairly promising.
Like HIK, it too has an earnings ratio of 11.3 times. Even better, it’s one of the very few financial services’ companies that’s still paying dividends. And it has a hefty yield of 7.8%. It hasn’t made any mention of cutting dividends, so unless things go south dramatically, this rich dividend-paying stock will continue to be a good investment. I’d buy this cheap UK share today.
Another pharma alternative
Last, but not least, another cheap UK share I’d consider buying is that of the FTSE 100 pharmaceutical company, GlaxoSmithKline, with an earnings ratio of 11.8 times. It’s in talks with the EU to supply Covid-19 vaccination, has reported rising profits, and pays a dividend. What’s not to like?
It might not look like it, but I think the FTSE 100 is in a sweet spot and the investor is spoilt for choice with respect to cheap UK stocks, albeit, with some risk taking capacity.